Good faith that is. In construction contracts. In examining the inclusion of an express term requiring parties to act in “good faith” in Standards Australia’s draft AS11000: General Conditions of Contract, in the current issue of the Building and Construction Law Journal (Vol 33 No 1), Alexander Di Stefano suggests good faith clauses in construction contracts contribute to the smooth operation of construction projects.

Di Stefano’s comprehensive review of the operation of good faith in contract law, particularly in relation to construction contracts, traverses the ways in which the obligation is included in contracts – by implication, interpretation, express term, and via statute (eg Sustainable Planning Act 2009 (Qld) s 671), and considers the principle’s application in decided cases (eg North East Solution Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1).

The main part of the discussion is concerned with reviewing the second version of the pertinent clause in AS11000 expressly obliging contracting parties to act in good faith in their dealings with each other. This is now supplemented with a definition of “good faith” in AS11000’s dictionary. Di Stefano’s analysis, which includes comparing the version of the relevant clause under discussion with an earlier version, sets out what contracting parties are variously required to do or not do in conformity with acting in good faith.

In identifying the benefits as he sees them of including a good faith clause in standard contracts, Di Stefano notes that one of these is international homogeneity. “Requirements of good faith or co-operation occur frequently in international construction head contract standard forms, and commercial contracting generally,” he says.

It would seem that some of the key benefits of having good faith clauses in construction contracts revolve around their promotion of trust and sound relationships between participants in construction projects, via their effective encouragement of openness and co-operation – including in the resolution of the inevitable disputes, rather than parties’ relying on “black letter” legal rights.

Di Stefano suggests this accords with a bigger purpose of such legal obligations, as set out by Allsop CJ of the Federal Court of Australia, in Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50:

“Trickery and sharp practice impede commerce by decreasing trust and increasing risk. Good faith and fair dealing promote commerce by supporting the central conception and basal foundation of commerce: a requisite degree of trust. Business people understand these things.”

The article concludes with Di Stefano’s suggestions for improving the good faith clause in AS11000 with additional subclauses providing clarification around questions such as how acting “reasonably” is to be assessed.

For insights and analysis bridging the theory and practice of building and construction law, you can get your copy of the Building and Construction Law Journal here.

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